Delta Sees the End of First Class Upgrades in 2018

Delta made a number of very revealing comments at today’s Investor Day. And I think their upsell plans, and vision for the future, paint very clearly the end of elite upgrades.

Elites Used to Get Better Treatment in Exchange for Giving an Airline Lots of Business

It used to be that 100,000 mile flyers found themselves in first class nearly all the time, and even mid-tier frequent flyers found themselves in first class most of the time.

Some still do have good upgrade success, it depends on the routes they fly — and when they fly them.

We’re Seeing a Perfect Storm Now Limiting Upgrade Success

There’s little question that upgrades are harder than they were 5 years ago and 10 years ago.

Airlines are selling discounted first class fares far more than they ever used to.

Airlines are making aggressive buy up offers to first class.

The economy is doing better than it was (hey, the Federal Reserve even raised interest rates!)

Airlines aren’t expanding as quickly as they used to. As air travel grows, and airlines ‘practice capacity discipline’, there’s more demand for a dwindling number of available upgrade seats.

Lots of people confirm their upgrades in advance – in part because of all the miles that are out there, and in part because of how tough the competition is.

All of these things combine to depress your upgrade percentage.

A decade ago discounted first class fares were rare. People paid $2000+ for an airline ticket up front, or they got the upgrade for free with their coach ticket. Back then revenue first class was usually less than 10% of the cabin, although on some routes of course it was higher.

There was very little in-between. Now airlines are more aggressive in taking some incremental revenue for the seat instead of only offering first class at full fare. Lower prices mean more people outright buy them.

Not only are airlines selling the seats cheaper, they’re making it easier for people to buy them. Go to an airline website to buy your ticket and you’re likely to be prompted with the suggestion that it’s “only” a certain amount more for first class. When people don’t look for that cheap price, it’s suggested to them. Some say yes.

Didn’t buy first class? If there are seats left the airline may try to sell it to you in person. While airlines usually say they are trying to accommodate free elite upgrades before selling those first class seats for “tens of dollars” to non-status frequent flyers, it doesn’t always work out this way. United’s systems are notorious for the cheap buy up offers, sometimes made only to non-elites. But it’s not limited to United.

All of this is in the name of maximizing revenue. What was once given to frequent flyers for free is now something that airlines are extracting money from. It’s part of how they’ve turned unprofitable to profitable.

And whether paid, paid at a discount, or purchased at a deep discount last minute, the fact that people have more money these days — and that more people are traveling while the airlines have maintained capacity discipline — mean that there are more elites chasing a fixed or even declining number of seats for upgrade.

Things are Going to Get Worse for Elites Especially at Delta.

When United and Continental merged, Continental management expected to get rid of Economy Plus extra legroom seats. Continental didn’t have them. But a funny thing happened — they discovered they could sell those seats.

Delta jedi mind tricks their members, and claims they’re just as happy — because they’re still sitting up front (only paying for it now instead of getting it as a loyalty benefit).

When it comes to loyalty, Hauenstein explained that “we do a Medallion Pulse survey, and we just got out November results yesterday. The pulse has been the highest it has been in 2.5 years. We have increased paid upgrades from 13% to 54%, and we have not disturbed the happiness of the medallions, and there is a trick. We look at who is purchasing the seat which appears to be the [Medallion fliers] who are being rewarded with more loyalty points.

Delta’s Chief Revenue Officer Glen Hauenstein sees the end of free upgrades, with everyone buying exactly what they get:

What we would like people to do in the next few years is to pick the airline and the product that works best for them.

So does that mean upgrade policies will change — for instance making upgrades simply to extra legroom seating rather than first class?

I disagree — any change in policy at that point is beside the point – though likely enough to follow, it would simply make de jure what will have become de facto. So at some level I think they have a direction they can see going, but decisions will ultimately depend on ‘facts on the ground’. But if things go the way Delta plans, then it certainly seems the end of first class upgrades are almost upon us at Delta.

How You Should Respond

It’s all well and good, each airline offers a value proposition and there’s nothing set in stone about that. Airlines that used to recognize and reward their best customers may choose a new strategy of viewing each transaction separately and giving you only and exactly what you pay for (if only you could hold airlines to those promises…).

But if that’s the case then there’s no reason to remain loyal. Loyalty programs should be loyal. And if they aren’t, there’s no reason for you to be. If it’s just about schedule and price from the airline’s perspective, so too from the consumer perspective.

And that’s the goose that will kill the golden egg of loyalty programs, which sell billions of dollars a year in miles to their partners at a very high margin.

Of course since not everyone else will be as operationally successful as Delta is today or as successful at upsells. So they will have a choice to make: the easy route of doing what Delta does and not going out on a limb or what’s probably best for their own businesses and generating business by recognizing and rewarding those customers who provide it. What is best for Delta may be best only for Delta. But as we have come to see, there are few bold movers in the industry willing to stake their own ground.

More From View from the Wing

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002.
Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

Comments

My friends and clients in europe think it’s hilarious that I feel entitled to free upgrades. I remember the first time I boarded a KLM flight with a near empty business cabin…I actually wondered why they didn’t upgrade me (lol). All these years later, I find myself paying for premium cabins. My good fortune to be able to do so isn’t lost on me…I’m grateful. The difference now is that come 2016, if I want to fly LAX-DCA…I’ll be damned if I layover at JFK. I’ll be on that direct and leaving my Platinum Medallion status (4th year running) behind. My only fear is that I won’t like the other in-flight products. I like Delta. I’m treated nicely and I’m comfortable. We’ll see…

As long as Delta continues to offer a substantially superior [hard and soft] product to United and American, they can pretty much do whatever they want loyalty program wise. A loyalty program is basically a rebate for your spend. Delta is essentially rebating the experience by making travel suck a little bit less, while American and United are rebating the traveler after the fact for their crappy experience. For many who travel weekly, not suffering through it is preferable to suffering and being better compensated.

“And that’s the goose that will kill the golden egg of loyalty programs”

Nice job butchering the metaphor there.

In any case, you’re wrong. With the majority of miles coming from credit card spend and non-airline partners, the airlines have learned that the loyalty programs can be successfully uncoupled from BIS flying.

If you’ve followed the commentary by the executives this year, you’ll know that “loyal” frequent flyers account for a surprisingly small chunk of an airline’s business. Of that chunk, only a subset are profitable enough to be worth fighting for (i.e. the ones flying premium cabins internationally or buying expensive last-minute tickets). Of that valuable subset, most will either be on a corporate contract or primarily concerned with taking the fastest/easiest option.

That leaves a very tiny group with (a) the resources to buy expensive tickets, (b) the flexibility to choose their carrier, and (c) the desire to choose brand loyalty over convenience. Surprise, surprise – those are the people who fare best under the new program rules! It’s almost as if the airlines designed them that way on purpose….

Everyone else is not valuable enough to bother competing over. I’m sure lots of people will reply fuming “I fly X thousand miles and spend $Y with airline Z every year. How dare you imply I’m not valuable!” Sorry, it’s true. Think of it as the frequent flyer equivalent of the Dunning–Kruger effect.

Arcanum
“Loyal frequent flyers account for a suprisigly small chunk of an airlines business.” Really, you cannot be serious. Oh, and of course the loyal frequent-flier is never remotely profitable for any airline.. I say bull to both points. Please show me the research where frequent fliers are not profitable in comparison to “I’ve got six months to shop for my flights” leisure travelers.

This evening I flew ALB-ATL and the gate agent told me there were a total of 40 Diamonds & Platinums on the flight. That’s Albuquerque one week before Christmas. I paid $624 for the one-way flight tonight and that doesn’t include my $200 change fee for having the audacity to move my departure up by 16 hours. For that unprofitable fare I was able to get a window seat in row 27. Livin the dream.

Airlines certainly have a right to make their business as profitable as possible but there is truly a breaking point to the monetization of every single aspect of their product. For me, that may be when Delta enacts the new, lousy comfort + rules in March. But, according to you, the flight tonight would have been more profitable to DL had there only been 4 Diamonds/Platinums instead of 40.

I guess I have two thoughts here…the first is, sorry for all of the road warriors but as someone who travels <50K miles/year and on his own dime I say fine with me. I'll sit in economy for all the short hops I do, and then if I want to go up to F for something longer, I'll shell out the tens or hundreds of bucks and that will be that. Heckuva lot easier than a) getting past the barrier to entry of attaining a decent status and then b) playing upgrade roulette.

Second thought is that "capacity discipline" can only last so long. Airlines are happy right now (because they're finally out of bankruptcy…), but soon they're gonna wanna grow the revenue. Yeah they've saturated their fleets for the moment, but then some bean counter is gonna say "I've got this idea…let's fly 777s from IAD to LAX", and management will be like "Brilliant!" and the cycle will start anew. If one thing is true in life, it is that EVERYTHING is cyclical.

Duh. This handwriting has been on the wall for a couple of years. It was really clarified with DL’s recent changes to their C+ product. AL seems to be the only airline willing and able to chart its own course. The others seem to have outsourced their management to DL. The “follow the leader” syndrome is typical for big businesses ruled by Wall Street analysts and consultants and who have management interested only in maxing out their annual incentive plans. I hope AL sticks with its program and can expand its route network in the East.

This will (temporarily) go out the window when the next inevitable recession occurs, probably in the next 2-3 years.

That said, domestic flying is becoming a commodity and the need for FF programs will diminish. Hopefully, Congress will wise up some day and allow foreign competition and foreign ownership of US Airlines.

This is an interesting topic because one of the major tenets of frequent flyerdom — that it’s good to be a top elite — seems much less true today. With free upgrade possibilities dwindling, there’s not a heck of a lot of value in high elite status. Mind you, it’s still good to have SOME status — so you at least don’t get stuck in a middle seat in the back, but top status ain’t what it used to be.

My guess is that the now-cash-rich USA airlines are going to realize this, and some new perks will be forthcoming. Personally, as a UA 1K, I don’t feel a lot of love from the airline. Indeed, it often seems that they couldn’t care less. That can’t be the best way to treat your top customers if you want to keep them your top customers.

The other interesting tidbit from the DL conference is also mentioned in the Travel Zork post. “Glen Hauenstein, Chief Revenue Officer, said, ‘We want our customers to have a lot of miles and use them like currency. Right now, they save them for the one big trip in retirement.’”

Just about everyone reading this blog knows how stupid this consumer behavior is. We know these miles devalue, so it’s all about earn and burn. But the typical frequent flyer doesn’t have a clue about this. And they don’t know that a couple of credit card sign-ups could get them that “big retirement trip” anyway.

The US needs to allow foreign carriers to fly US domestically. DL/AA/UA complain about the middle east carriers – let them fly A380s transcon if they want.

It is price for most people, and carriers like Southwest and Spirit keep expanding.

US Government needs to tax FF miles if not paid for by the traveler. So corporate American would give out a 1099 to corporate travelers that keep the miles, since they are based on amount spent and can be monetized. . Then loyalty is gone.

I know generally speaking Gary does not like Delta. Consider that several Delta credit card products are also used as tools to reach higher status from people like me. Noise like this from an investor day mean absolutely nothing. However if Delta were to make changes to the upgrade process, so does American and United. Remember when American was touted so highly? I would not get chafed by any of this stuff. It doesnt mean anything for the most part. One more thing. I fly Delta alot. When I am Diamond (like now) I get pretty good treatment. If Diamond status doesnt give better treatment I wont get it again. Simple as that. Also what makes Delta operationally that much better than American? I fly both without issue. Just wondering. This is stated alot even by Gary, and others but I dont understand what makes them better. American has some better equipment like the 777W I will fly in a few weeks to LHR. I have never been much impressed with Deltas aircraft. American has some neer planes with more on the way with 738 and 787s.

What I have never quite understood about the US system is that you always get a full front cabin, which is not pleasant. The European model generally leaves a lot of empty seats, which makes the other people who paid for those seats happy as they have more space and get better service.

Meanwhile, those down the back know they have to pay to sit at the front, irrespective of status.

It is this lack of price discipline which has been a problem for US carriers and they should, economically, be weaning themselves off it.

You might be a hub-captive, consistent, DL customer. But opting for DL on ABQ-ATL tells me that you like the convenience of the only non-stop in that market. Were you opting for DL over another carrier with a nonstop, I’d be persuaded that you are “loyal”.

@iahphx but the rest of how Hauenstein wants consumers to use their miles is for ancillary purchases from Delta (at very low value)… one example he gives is using miles for premium alcohol purchases in the lounge.

How many businesses can be profitable based on a model where they consistently give away 75% of the inventory for their best products for free? It just doesn’t work. Kudos to Delta for figuring out how to sell most of first class. Sure, upgrades are great, but the model of most first class seats being filled by upgrades is unsustainable. Those who don’t like it need to get over it. I doubt the businesses they work for or own give away most of their best inventory for free and turn a profit.

Jfhscott:
Can I be both, because I am…..or was. Yes, ABQ-ATL on DL was for the convenience of a non-stop. I am willing to pay the additional fare for the convenience and time saving of the DL direct. I also choose Delta when there are other direct flight options so I guess that makes me loyal.

Again, for me as a platinum med, the final straw in the DL commoditization push is the horrible decision to allow even one confirmed comfort plus seat when booking. Come March, I will actively look to move my business away from Delta when that new rule goes into effect. Like many others have posted ,we badly need foreign carrier competition in this closed US market.

American wants you to spend your miles at 2X-3X the cost to fly to Europe or many other destinations. Whatever changes Delta makes, American will be making the same changes. And most likely United as well. Whatever money the credit card programs bring in, that will be reduced going forward as well.

Per iahphx, “The other interesting tidbit from the DL conference is also mentioned in the Travel Zork post. “Glen Hauenstein, Chief Revenue Officer, said, ‘We want our customers to have a lot of miles and use them like currency. Right now, they save them for the one big trip in retirement.’”

I really think that the senior management at the airlines are dumb. And that statement verifies it. Right now, all my credit card spend is on miles or hotel point generating cards. And I pay over $1,000 in fees annually to keep those cards. If miles become a “currency”, then I will move my spend to a cash back card with no fee. I will not have any miles.

Regarding Delta, because of their anti-points policy, I never fly them. It is so bad that I have 30,000 stranded miles which I have never bothered to use. Where did I get these miles? From a flight to Japan on Northwestern in the 1990s. Do miles policies have an impact on flying patterns. Yes they do!

I have no status with DL, but the difference between the ‘basic economy’ and F fare was only $60. Since I’m checking 2 bags, it was actually the same price to fly in F, and I’ll get a free drink, early boarding and extra Alaska points.

So this is neither incremental revenue for DL, nor rewarding a loyal customer. But if this is the way they want to run their business, it’s fine by me…

I gave up on loyalty a few months ago. If they keep devaluing I may end up actually ordering from the merchandise catalog.
It’s all good as long as I don’t have to lick S&H green stamps for a #2 driver…..which brings to mind exactly what Southwest used to give as loyalty gifts.

And this is why I just decided to credit to AS this year. I’m not getting upgraded anyway since I don’t fly enough to be top-tier, so I may as well use the better FFP and have the choice of AA, DL, and AS. First-class fares are often fairly cheap nowadays, so if I want to sit up front I just buy it.

I have been UA 1-K from day one. It ends this year. Do the math. There are now just 3 legacy carriers left. They know that each will gain and loose about the same percentage of “loyal” customers in the course of a year, so why care? These programs cannot disappear fast enough for the airlines, so they help the process along by continuing to devalue all that they can. With fares often more reasonable now, I will just buy the class that I want to fly on the carrier that I think best. Think Air Swiss which has a great flight from Boston to Zurich. A pox on the US carriers!

Nothing here stands up to critical analysis. The article has DL trumpeted how they are converting free upgrades into small incremental revenue. Many commentators here say “Good, because why should a business give away its best product?” (Not sure why so many people feel compelled to leave the exact same comment as many others have already done, but that’s an entirely different matter).

On a transactional basis, receiving tens of dollars is better than receiving nothing. But a financial year is made up of the sum of many transactions, and a business’ future depends on longer-term trends than even one year’s worth of transactions. So, what are the trade-offs in upselling a seat for a small amount of money? As Gary notes, it means the end of loyalty, and that can be very damaging for an airline over time. Further, consider the effect on purchasing decisions. When airlines sell first class very cheaply , why should anyone pay full fare or even normal discount first class fares? Which is better for an airline: to sell 10% of seats are full value, or sell 100% of seats at a steep discount? If you’re talking about selling 10% of seats for around a thousand dollars, versus selling all seats for a hundred dollars, the latter can be a huge net loss.

Well, I don’t really believe that elites are entitled to first class upgrades anymore. Travelers have been crying out to airlines to offer lower and lower fares. Now fares are the lowest they’ve ever been. The way I see it is, if you want lower fares, don’t expect premium elite upgrades.

I’m elite at VX and they’ve never offered elites free upgrades, only an advanced upgrade window as it should be. Fare classes should determine upgrades. If elites want the premium seat so badly, airlines should offer main cabin fares that are upgrade-able.

If AA’s or any airline is selling LGA-DFW for $99 for example, no-one including elites should have the ability to jump right up to first class for a few hundred miles.

In the 1990s Delta would give Medallions and Royal Medallions a very small number of upgrade coupons. If you wanted more you could buy them on a space-available basis. I was very happy to pay $30 per segment to upgrade to first. I might add that I was traveling on prepaid business travel, and i paid for the upgrades out of my own pocket. I’m just not sure where people got the idea that this should be free.

Of course, it helped that I got 2,000 miles per segment for flying in first.

I’m a first time American Gold and FlyingBlue Silver this year. Maybe it’s more interesting at the upper levels but I really don’t see much difference from being a non status customer with a free cheap credit cards.

“What we would like people to do in the next few years is to pick the airline and the product that works best for them.”
I suspect Delta’s Glen Hauenstein is thinking that customers should pick the airline and product that is best to be loyal to based on a realigning market.
But in fact what the evolving FF situation really drives, for many of the customers that were loyal, is that now we will pick for each trip/region/service area, and let the miles and statuses be what they may.
Delta is betting they’ll get an increasing market share in that strategy. I am not so sure at all.

Delta is well known for having a better operation and leaving out the computer melt downs and storms, still does it better than American. I haven’t flown American in 30 months, only Delta, other than award travel. I hate American and I’m a stockholder. Unless you are Exec Plat with American, you are worthless to them. Even when Delta screws up they treat passengers better than American or United. As far as not getting upgrades, I have not had high level status in over 10 years, but at low levels it just isn’t worth the benefits. I’ll a buy first class seat when I need it.

And this is why I just decided to credit to AS this year. I’m not getting upgraded anyway since I don’t fly enough to be top-tier, so I may as well use the better FFP and have the choice of AA, DL, and AS. First-class fares are often fairly cheap nowadays, so if I want to sit up front I just buy it.
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About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel -- a topic he has covered since 2002.

Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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